Quick View: Saudi Demands Threaten Continued GCC Unity

The Latest: On Friday June 23, Saudi Arabia and its allies in the ongoing diplomatic spat with Qatar - namely the UAE, Egypt and Bahrain - delivered a list of 13 demands to the country. This came nearly three weeks after Saudi Arabia and its allies cut off ties with Qatar and closed their borders, ports and airspace to the country. Many of the items on the list are those we had anticipated, namely a ceasing of support for terrorist groups, and a retrenchment from the closer ties Qatar had been developing with Iran - Saudi Arabia's regional rival. In addition to these are other demands such as compensation for any victims or losses owing to Qatari policy over the past several years, the closure of a Turkish military base in Qatar, and the outright shutter of al-Jazeera and other media channels. Qatar has been given 10 days with which to comply, and is reportedly giving the demands careful review and consideration, despite having initially dismissed them as excessive and aimed at 'limiting Qatar's sovereignty'.

Risks To GCC Unity Rising

Qatar - Diplomatic Ties To The Region

Source: BMI

Implications: The latest move by Saudi Arabia and its allies suggests rising threats to the unity of the Gulf Cooperation Council (GCC) - the regional bloc encompassing Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. We cannot completely rule out that this latest move by Saudi Arabia is simply an attempt to ensure a strong bargaining position. However, the scope of the demands and the timing is perhaps telling, after it has become clear in recent weeks that Qatar will not immediately bend to its fellow GCC members' demands. Indeed, the list of demands placed on Qatar is unlikely to ever be realised in full, as many would run deeply counter to the country's own interests. While ostensibly an attempt to make Qatar cut ties with terrorist groups, we believe the decision to censure the country by a number of its fellow GCC members reflects deep differences in foreign and domestic policy preferences. Qatar is not only being punished for pursuing a more independent foreign policy, including developing closer ties with Iran and Turkey, and allowing in members of militant groups like Hamas. We believe it has also irked its neighbours by promoting the popular al-Jazeera news network, which has been openly critical of a number of the other Gulf monarchies.

What's Next: The elevation of Mohammed bin Salman to the position of Crown Prince in Saudi Arabia on June 21 indicates to us that the assertive approach that has characterised Saudi foreign policy under his stewardship over the past several years will be continued. This suggests that a considerable policy shift by Qatar will likely be required in order to quell the demands and settle the spat. With US Secretary of State Rex Tillerson now taking a more vocal role in the dispute, pressure will likely be exerted by the US behind the scenes in order to effect compromise from both camps, although this could be derailed by any further inflammatory statements by President Donald Trump, who has previously come out on the side of the Saudis. We continue to believe that a deal remains in the best interests of all parties concerned, though signals from Saudi Arabia and its allies of their willingness to adopt a harder-line stance than we initially expected toward Qatar suggests the process by which this is reached may take longer than we had initially anticipated. Should we see the two sides fail to come to terms within the 10-day time limit set by Saudi Arabia, we will likely begin modifying our economic and political forecasts to a greater extent, to reflect our view that the current sanctioning of Qatar will be extended for a far more prolonged period of time.